September 2012

09/28/2012

The top marginal tax bracket on qualifying
dividends is 15 percent through the remainder of 2012. Next year, the rate is
slated to go up to 43.4 percent.

Planning is one thing, but
taking action is another. Right now, when it comes to taxes, the time may be
right for small business owners to take action.

Forbes recently wrote an article titled, “Taxes are Low - Move it or
Lose It!,” explaining that taxes may take a turn for the worse – and
soon - once the calendar rolls over to 2013!

Right now capital gains and
dividend taxes max out at 15%. After the year’s end, however, these rates are
set to lapse and skyrocket to 23.8% on long-term capital gains and 43.4% on
qualifying dividends. So, what is a small business owner to do?

The original article in Forbes provides some practical actions
to take, including:

If you are selling all or part of your business,
do it now.

If you have any qualifying dividends available
for distribution, do it now.

What else should be done?
Certainly the original article offers some additional pointers, but the
specific actions depend on your unique circumstances.

Regardless, this is a perfect
time to schedule that consultation with your financial, tax and legal advisory
team, sooner rather than later.

09/27/2012

Slightly more than half of women 65 and
older rely on Social Security for three-quarters of their income, according to
the Employee Benefits Research Institute. Choosing when to start taking
benefits—a decision that can be affected by factors like health, savings and
other sources of income—is complex even for pros.

As we age, planning for
longevity includes many important decisions and compromises. The timing of
these plans when it comes to Social Security is often misunderstood, especially
for married couples when one spouse outlives the other. And since statistically women live longer
than men, the ladies in our lives should pay close attention to the details of
their plans.

The longevity calculus is
oftentimes missing as it concerns women who rely on Social Security. Especially
amongst earlier generations, wives may be more reliant upon their spouse’s
Social Security and, therefore, on their spouse’s work history. This is almost
a given if the wife was a homemaker.

If the married couple begins
taking Social Security early, then it may adversely affect the spouse who did
not work outside the home (or worked for a short duration, usually at reduced
compensation), but who will survive longer. Even aside from Social Security,
this disparity between the sexes is not something that should escape a prudent
financial planner’s attention. Unfortunately, this is an easy fact to forget.

Many
(same-sex couple) families go to great lengths to establish strong legal
relationships where they can.

When same-sex couples become
parents, regardless of where they live, they frequently are well-advised to
establish strong legal relationships to bolster parental ties to their
children.

Take, for example, the legal
complications surrounding same-sex unions as recently explored in The New York Times. The article, titled “A Family With Two Moms, Except
in the Eyes of the Law,” found that many same-sex couples do start
families and do bear children. As a result, very careful estate planning is essential,
especially given current state and federal laws.

For any couple with minor
children, fundamental estate planning focuses on providing backup parents
(i.e., guardians) to raise them and trustworthy stewards to protect their
inheritance. When it comes to same-sex couples, making such provisions for
minor children likely means navigating a dicey web of laws that may (or may
not) tilt in their favor.

To make matters even more
complicated, a simple relocation from one state to another may upset your comprehensive
estate planning and require a top-to-bottom review of your existing estate
plans.

In the end, not only must you
fully define your own legal structure, but you must also do so well in advance
and make changes as they inevitably occur in the law and in your life.

09/26/2012

Without
congressional action, in 2013, the estate tax exemption will shrink to $1
million per person with no spousal transfer, and the top rate will increase to
55%, striking a blow to farmers and ranchers trying to transition from one
generation to the next.

The Joint Economic Committee
recently released a report on the devastating power unleashed upon family farms
when an estate tax is triggered. Simply titled “Estate Tax Report Released,”
the committee also considered the broader impact on the economy.

The report, approved by the
American Farm Bureau Federation and examined in Farm Futures, notes that, while farm owners may have a great
potential wealth … such wealth is tied up in land (an illiquid asset) and is
not necessarily cash-in-hand.

However, the IRS will hold you
accountable for the estate taxes due on your land, even if you have to sell the
land to pay for it.

"When estate taxes on an agricultural business exceed
cash and other liquid assets, surviving family partners are forced to sell
illiquid assets, such as land, buildings, or equipment to keep their businesses
operating," said AFBF President Bob Stallman. "With 88% of farm and
ranch assets illiquid, producers have few options when it comes to generating
cash to pay the estate tax."

If you (or a loved one) own a
family farm, then there is no time like the present to make proper estate plans
to protect and preserve the farm and the family wealth it represents. You have
worked hard to make a living from your farm. It is common sense to spend
some time and money protecting and preserving it. Take time now to consult with a tax and estate planning attorney.

09/25/2012

Five studies presented at the Alzheimer’s
Association International Conference in Vancouver this month provide striking
evidence that when a person’s walk gets slower or becomes more variable or less
controlled, his cognitive function is also suffering

Early diagnosis of Alzheimer’s
is key to planning for and managing the disease. More treatment options are
available when the diagnosis is made sooner, and certainly more estate planning
options remain open with earlier diagnosis. Of course, Alzheimer’s and dementia
are difficult to diagnose, but recent studies suggest that changes in a
person’s walking gait can provide striking early evidence of cognitive
impairment.

Cognitive disease symptoms
steadily destroy our ability to plan for the disease itself. This troubling
fact carries over to the legal issues of “mental capacity” when it comes time
to plan your estate. So, what are the outward warning signs of present or
future issues?

Some new studies have come to
light about walking and dementia. The New
York Times recently addressed this connection in an article titled “Footprints to Cognitive
Decline and Alzheimer’s Are Seen in Gait.” According to recent
findings, a person’s gait – the way he or she walks – can be an early indicator
of oncoming impairment for some. It seems the more difficulty a person has
walking, the more difficult it is to process certain information.

In fact, the results of testing
were even more dramatic when persons where required to engage in various mental
exercises while walking. Although neither conclusive nor confirmed, there seems
to be a link between exercise and cognitive impairments.

09/24/2012

If you're wealthy enough for your assets to
trigger the estate tax, (which, absent new laws, means you have more than $1
million, or $2 million for a couple, as of January 1, 2013), you should know
that the laws governing these taxes have been changing year after year.

When was the last time you
reviewed your estate plan? Whether because of changes in your own life or that
of your loved ones … or the ever-changing estate tax laws, regular updates and
reviews are essential. As recently reported in Reuters, failing to update your estate planning can be disastrous.
Consider the case of the Tweten family as another example of the best-laid
plans of mice and men going horribly awry.

Leonard and Eileen Tweten built
their $100 million fortune by founding and building the Magnolia Audio Video
Company. In 2008, the Tweten’s made estate plans to maximize their estate tax
savings using a “formula clause” that automatically utilizes the maximum
exclusion amount to their children, with the balance passing to the surviving
spouse. Had one of the Tweten parents died in 2008, it would have meant that $2
million passed to their children. (Under current law, this would have meant
$5.12 million.)

Problem 1: the Twetens did not
anticipate a “zero estate tax” in 2010, the year of Eileen’s death.

Unintended consequence 1: the
entire one-half share held by Eileen passed to the Tweten children!

Problem 2: Leonard and Eileen
tried to correct this unintended consequence on her deathbed, but they were
unsuccessful.

Unintended consequence 2:
Unfortunately, when the Tweten children were “content” with the unintended
consequence following their mother’s death, the matter went to the courts – and
became a mess.

As the Tweten case illustrates,
estate planning is a process, not an event. No fortune, large or small, is safe
from the rules governing estate tax minimization as long as there is a sitting
president, a Congress, and an IRS to enforce the tax collections.

Particularly in uncertain times,
politically and financially, your estate plans should be reviewed early and
often. If it is time for you to review your estate plan, contact a competnent estate planning attorney.

09/21/2012

A California intermediate appeals court
recently used a set of egregious facts in Beckwith v. Dahl1 to create the tort
of interference with expected inheritance.

Torts are rarely spoken of when
it comes to estate planning. However, the subject came up in a recent California
case about a new tort of “intentional interference with inheritance.”

California set the precedent for
this tort in the case of Beckwith
v. Dahl, 205 Cal.App.4th 1039 (May 3, 2012). A recent article in Wealth Management titled “Interference with Inheritance,”
noted that any time a new rule is created it offers new boundaries to be tested
by litigators and, in this case, any jilted family member.

As a result of this case, there
are words to express the illegality of a terrible thing too many people attempt
and get away with - interfering and disrupting inheritances or the intentions
of elderly benefactors. On the other hand, those same words can be used to
create confusion and unnecessary court battles.

When planning your estate, your
end goals likely include ensuring the safety of your choices and the safe
transfer of your assets, without litigation and pain for your beneficiaries.
Against that backdrop, is tort a trend to watch in a negative light?
Alternately, is this development praiseworthy?

We can only wait and see what
the best answer will be. In the
meantime, seek professional counsel if you have any questions about how torts
can affect your estate plans.

09/19/2012

So what are one’s options when one has the
requisite intention without the ability to write a check or transfer portfolio
assets to a trust? For many reasons, I’m
a fan of gifting one’s personal residence to an intentionally defective grantor
trust (IDGT).

When it comes to transferring
real estate, you have many options. However, one you ought to investigate is
the Intentionally Defective Grantor Trust (IDGT).

The ins and outs of the
venerable IDGT was explored recently in a Forbes
article titled “Reduce Estate Taxes
Without Reducing Your Liquidity.” It’s better not to wade too
deeply into what makes an IDGT “intentionally defective,” except to say it
creates a unique tax situation. Moving the real estate (perhaps your personal
residence) into the IDGT will count as a gift in the year you make the transfer,
even though you’ll still be living in the house. Effectively, you are setting
up your own trust as a landlord, and yourself as tenant, complete with rent
payments into your own trust. Properly done, in the process you will enjoy a
great number of tax advantages.

Employing an IDGT to transfer
the family home may be a perfect technique to maximize your wealth transfers, particularly
in a soft real estate market with an uncertain estate and gift tax future.

Even if you already are savvy on trusts, why
would you want to consider adding another role and another hand in the process?
While there are many reasons, one constant is the perennial problem of the
untrustworthy trustee. Should that ever happen, then a trust protector is made
to order.

In practical terms, the trust protector is an
individual (or even a team of individuals) who assumes little in the way of
day-to-day administration of the trust, but does assume higher powers over the
trustee who does perform such functions. Result? The trust protector can fire
the trustee, if they get out of line.

You may find comfort in adding a trust
protector to the mix as a way to protect your beneficiaries and guard over your
assets.

09/17/2012

Many fundraisers say they still can’t raise
as much as they did before the economy soured in 2008. Particularly difficult
to come by, they say, are gifts from affluent donors.

We’ve all been affected by the
financial crisis surrounding the recession. With less money coming in during
these tight financial times, there is less available to spend …and also less to
give to those who are in need.

The Chronicle of Philanthropy offered some quantifiable perspective
on the crisis in the non-profit sector over these past three years in an
article titled, “Giving by the Rich Dropped $30-Billion
During Recession.” Indeed,
from 2007 to 2009 charitable giving dropped by some $31 billion amongst those
with incomes of $200,000 or more according to recent data from the IRS. If you
move to the other end and count individuals earning $100,000 or less annually,
the charity deficit runs up another $4 billion or so.

Keep in mind, since these are
IRS numbers, this only reflects actual charitable contributions for which
deductions were taken. Ultimately, these numbers will be seen and felt by the
non-profit sector, to include your favorite charities and those they serve.

As we approach the end of the
year and the season of giving, have you made plans for your charitable gifts
this year?